Lagos Nigeria, 12 October 2020–Global Credit Ratings has affirmed the national scale ratings assigned to WSTC Financial Services Limited of BBB-(NG) and A3(NG) in the long term and short term respectively. The ratings have been placed on ‘Watch’, and is valid till April 2021.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to WSTC Financial Services Limited (“WSTC” or “the company”) based on the following key criteria:
The ratings take into consideration WSTC’s strong market position and good track record of around three decades as well as its sound capitalisation, liquidity, and asset quality metrics. However, the ratings are placed on “Watch” to enable GCR assess the impact of the current macroeconomic challenges and uncertainties on the company’s performance within the next six months.
WSTC is adequately capitalised for its current operational scale. Shareholders’ funds increased by 5.5% to N2.2bn at FY19, underpinned by sound internal capital generation. However, rapid growth in risk weighted assets saw the capital adequacy ratio moderate for the second consecutive year to 50% at FY19 (FY18: 79.2%) and stood at 50.5% at 1H FY20, albeit exceeding the regulatory minimum of 12.5% by a comfortable margin.
Asset quality remains sound, with nil non-performing loans recorded over the review period. Total loan loss provision stood at N1.2m at FY19 (FY18: N1.4m) and was made in line with IFRS 9 accounting standard.
WSTC’s liquidity position is considered satisfactory, given the highly liquid balance at FY19; a sizeable 54.2% of the company’s asset base were held in cash and liquid assets at that date. However, the contractual matching of assets and liabilities reflects a liquidity gap of N2.5bn (117.3% of capital) in the ‘less than one-month’ band.
WSTC’s profitability indicators improved in FY19, with pre-tax profit increasing year-on-year by 31.2% to N283.1m. While net interest income grew by 21.8% on account of expansion in business volume, a significant 43.9% decline in non-interest income moderated growth at the total operating income level to 6.4%. Reduction in staff-related cost in FY19 saw operating expenses end down 8.5% to N340.8m, translating to an improved cost ratio of 54.5% (FY18: 63.4%). Overall, return on average equity and assets strengthened to 13% and 3.2% in FY19 (FY18: 9.4% and 2.7%), respectively.
Reflective of the challenging operating environment, performance as at 1H FY20 measured below the corresponding period in 2019 and 2020 budget on annualised basis. A pre-tax profit of N85.5m was recorded in 1H FY20, lagging the FY20 budget by annualised 14%.
The ratings could improve following a significant and sustained higher profitability level. In addition, ability to maintain asset quality metrics at sound level against an expanding loan book may be positively considered. However, a significant decline in asset quality and /or liquidity position, as well as profitability metric may result in a downward review of the rating.
NATIONAL SCALE RATINGS HISTORY
Initial rating (June 2011)
Long term: BBB-(NG)
Short term: A3(NG)
Last rating (September 2019)
Long term: BBB-(NG)
Short term: A3(NG)
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Criteria for Rating Finance and Leasing Companies, updated March 2017
WSTC rating reports (2011-19)
Glossary of Terms/Ratios (February 2016)
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and (d) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The ratings were solicited by, or on behalf of, WSTC Financial Services Limited, and therefore, GCR has been compensated for the provision of the ratings.
WSTC Financial Services Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit ratings above were disclosed to WSTC Financial Services Limited with no contestation of/changes to the ratings.
The information received from WSTC Financial Services Limited and other reliable third parties to accord the credit ratings included the latest audited annual financial statements at 31 December 2019 (plus four years of comparative numbers), latest internal and/or external auditor’s report to management, full year detailed budget for 2020, and most recent management accounts to 30 June 2020. In addition, information specific to the rated entity and/or industry was also received.